Buy Suzlon Energy, Inox Wind shares, says Anand Rathi. Here are stock price targets

Domestic brokerage Anand Rathi has initiated coverage on Suzlon Energy and Inox Wind with 'Buy' ratings, citing the renewed focus on the wind-energy sector amid  ambitious growth plans by the government.  After a long lull since FY17, order books  of Suzlon Energy and Inox Wind have jumped, which provide earnings assurance, the brokerage said adding that the competitive intensity for the sector has come down as players have exited the space, leaving only two to capture the market.

In the past one year, the two stocks have rallied 4-5 times, given impressive growth opportunities. Anand Rathi sees upsides on both the stocks.

Anand Rathi said Suzlon Energy Ltd traded at 28 times PER during the FY08 rally when business peaked before the global financial crisis hit businesses globally. During FY16-17, when its WTG business was recovering, Suzlon Energy and Inox Wind traded at 10-12.5 times trailing earnings in FY16/17 (6-15 times EV/EBIDTA).

That said, "as the WTG market construct shifts from government incentives-led (accelerated depreciation, generation-based) to market-linked and C&I, we expect sustained growth opportunities for listed players. We have ascribed multiples of 35 times/30 times FY26e to Suzlon/Inox Wind to derive price targets," Anand Rathi said.

The steeply higher multiples re-ratings are due improving return on equity (Suzlon Energy/Inox Wind FY25/FY26 RoE are likely at 20-39 per cent against FY16/17’s -13 per cent to 28 per cent), reduced competition post sector-consolidation and a sharp focus on strengthening financials as both companies are nearly debt-free.

Suzlon Energy target price

Anand Rathi has a target of Rs 49 on Suzlon Energy. With a 32 per cent market share in India’s wind turbines, Suzlon Energy turned net-cash in 9MFY24 for the first time since FY06. It has battled high debt from incessant acquisitions, the 2008 global financial crisis and anaemic domestic markets due to policy changes, which crimped its prospects.

"Ahead, with fully integrated operations, a net-cash BS and new products (3MW wind turbines), it is likely to play a decisive role as domestic wind capacity ramps up to 100GW (45MW now). On more wind turbines installed, we factor in 64 per cent PAT CAGRs over FY24-FY26. We initiate coverage of the company with a Buy recommendation, on 35 times FY26e PER, given its dominant market position," Anand Rathi said.

Inox Wind share price target

Anand Rathi has a target price of Rs 590 on Inox Wind.  Fully integrated in wind energy, Inox Wind is set to benefit from the upturn in the sector, Anand Rathi said. After a turbulent FY18-23, promoters’ fund infusion has cut interest-bearing debt to Rs 500 crore in Q3FY24. Ahead, aided by a strong, 2,600MW order book, Anand Rathi expects 450MW/700MW/1,000MW delivery in FY24/25/26. The landbank may support 5GW of capacity, which would ensure faster turnaround of turnkey projects (1.8GW out of 2.6GW).

 

"We factor in a sharp earnings turnaround over FY24-26 and initiate with a Buy, on 30 times FY26e PER," it said.